Startup Funding Club SEIS Fund

Apply by 26 August for targeted deployment in the current tax year

For investors happy with the high risks of SEIS, the Startup Funding Club SEIS Fund is one of the strongest offers available, in our view. 

Originally set up as an angel syndicate in 2012, Startup Funding Club (SFC Capital) is now a leading early-stage investor. To date, it has invested in over 330 companies, making it the most active Seed investor in the UK and the third most active in Europe. 

Funds from previous years have now started to generate exits and return cash to investors. Cognism, a machine-learning driven marketing platform, is an example. The SEIS fund partially exited its position, generating a 43.2x realised return, before tax relief. Overall, the manager has completed eight full or partial exits from SEIS qualifying investments through a mixture of trade sales, share buybacks and secondary buyouts to date. Past performance is not a guide to the future. 

Investors should expect a portfolio of at least 10 investee companies across a range of sectors, including digital technology, life sciences and consumer goods. Please remember most of the businesses are very early stage with little or no revenue, making them very high-risk, softened somewhat by the tax relief. 

  • Target return of £3 per £1 invested after five to eight years (not guaranteed)
  • Minimum investment £10,000 – you can apply online
  • Deadline of 26 August for targeted deployment in the 2022/23 tax year

Important: The information on this website is for experienced investors. It is not a personal recommendation to invest. If you’re unsure, please seek advice. Investments are for the long term. They are high risk and illiquid and can fall as well as rise in value: you could lose all the money you invest.

Read important documents and then apply

The manager

Startup Funding Club (now SFC Capital, “SFC”) is an angel investment club focused on very early-stage businesses. It identifies opportunities for investment and provides ongoing support and expertise to the portfolio companies in which it invests. 

One notable early success, which helped SFC get where it is today, is Onfido, an AI-based identity verification business. Impressed by the management team, SFC invested before the business even had a product, incubating Onfido at SFC’s offices. The investment was SEIS qualifying but was made prior to the SEIS fund being set up. 

In 2019 and 2020 Onfido was identified as one of the fastest-growing businesses in the UK by The Sunday Times Sage Tech Track 100. Onfido has since raised capital from investors such as Softbank, Salesforce Ventures, and Microsoft, as well as $100 million in a round led by TPG, an early backer of Airbnb and Uber. In a secondary sale in 2020, SFC’s initial investors had the option to exit their investment for a 100x return on capital, not including SEIS relief. Note that past performance is not a guide to the future. 

SFC launched one of the UK’s first SEIS funds in 2013. Since then, it has gone on to become a prolific seed investor. A 2021 report from PitchBook Data named it the third most active Angel & Seed investor in Europe, alongside names such as Enterprise Ireland, Accel, and Index Ventures. 

The SFC angel network is a group of over 500 active angel investors from various backgrounds, many with direct experience in building and investing in successful young companies. They co-invest alongside the fund and bring additional funding and experience to the portfolio. To date, SFC has facilitated investments in over 330 early-stage companies across a broad range of sectors and won numerous industry awards for angel and seed investing. In addition to the angel network, SFC has forged ties with some of the country’s leading universities and startup accelerators to broaden its deal flow.

The SFC team is headed up by Stephen Page, CEO. Stephen has founded and exited a number of software businesses and is supported by Chief Investment Officer Joseph Zipfel (featured in the video) whose background is in investment banking and corporate finance. The wider team and board of directors of SFC have backgrounds in investment banking, software, corporate finance, and entrepreneurship. In total the team consists of 18 individuals, most of whom are actively involved with investment decisions.

Startup Funding Club (now SFC Capital Ltd) is the investment adviser to the fund, which is managed by Kin Capital Partners LLP. SFC Capital Ltd is an appointed representative of SFC Capital Partners Ltd.

New: Meet the manager – video interview with CIO Joseph Zipfel:

 

Investment strategy

World-leading universities, access to some of the world’s largest businesses, specialist tech capabilities, great infrastructure, a pre-eminent financial centre, and supportive policies for SMEs all make the UK a great place for startups. 

The Startup Funding Club SEIS Fund aims to tap into this growth. It invests in a portfolio of very early-stage companies with innovative products and disruptive technologies which have the potential to generate successful exits at a significant (tax-free) multiple of the cash invested. The team targets a return of 3x, not guaranteed.

Companies will typically be less than two years old at the point of investment, with an initial version of their product or service. They may have signs of early commercial traction but usually little or no revenue. At this point, valuations tend to be lower and the risks very high. 

SFC seeks to acquire meaningful strategic shareholdings in each company, so as to be able to influence the management of these ventures and put the right expertise, support and governance structure in place from the beginning. This includes attending board meetings (either as observer or director) and establishing connections within the SFC Alumni and SFC Partner Network to provide advice and services to portfolio companies.

SFC aims to exit investee companies within five to eight years, not guaranteed.

Portfolio

Investors in the current iteration of the fund can expect exposure to a minimum portfolio of 10 companies, however, tranches could be significantly larger – with the fund targeting an average of 20 companies per investor. As a generalist fund, investee companies will operate across various sectors including digital technology, life sciences and consumer goods. SFC seeks to invest subscriptions over a twelve-month period following a closing date, not guaranteed. 

Below are portfolio company examples from previous iterations of the SEIS fund. They are outlined to give a flavour of the types of companies SFC might invest in, but are unlikely to be part of a new investor's portfolio. SEIS funds tend to be managed on a discretionary basis so each individual portfolio is likely to be different. 

The Bear Can Read – Startup Funding Club SEIS-min.jpgThe Bear Can Read - recent investment

Parents helping their children to read is nothing new. But increased working from home during and after the pandemic means we’re now closer to our children’s education than we have been in decades. Unfortunately, the pandemic also illustrated how stressful home schooling can be, which is what The Bear Can Read sets out to address.

The company was founded in 2019 by Oxford University Press and Pearson children’s publisher Camilla Macoun. She noticed that her own daughter was struggling with reading and that the books she brought home from school were uninspiring and in some cases up to twenty years old.

The Bear Can Read aims to make learning to read at home easier and more fun for children and parents. A monthly subscription provides a pack of age-appropriate phonics books, worksheets and expert advice – all tailored to be as engaging as possible. Regular subscription clubs start at ages 2-3 and go up to 7+.

SFC first invested in the business in February 2022 at a £1.5 million valuation.

Novai – Startup Funding Club SEIS FundNovai

A spinout from University College London, Novai is a biotechnology company aiming to improve the detection and treatment of chronic eye diseases.

In chronic diseases such as glaucoma, indicators of the disease progression are often only detected after irreversible damage has already occurred. 

Novai’s proprietary technology (DARC) – which combines a patented biomarker with AI – detects disease activity at a cellular level using only standard imaging equipment. This could help pharmaceutical companies de-risk and accelerate clinical development of glaucoma and age-related macular degeneration (AMD) treatments, providing significant cost and time savings.

DARC was developed over 10 years of research by Professor Francesca Cordeiro and received more than £4 million in funding from the Wellcome Trust and UCL. SFC led a £500,000 seed round in 2020, of which £150,000 was SEIS qualifying. The funding was to be used to start the commercialisation phase of the technology after securing contracts with several large pharmaceutical companies in its first trading year. The business has since raised two further follow-on funding rounds in early 2021 and October 2021. 

Cognism – Startup Funding Club SEISCognism – example of previous exit

Cognism is one of the UK’s fastest-growing technology companies. It has developed software that uses machine learning to help sales and business development professionals find prospects. 

The business was founded in 2015 by CEO James Isilay and CTO Stjepan Buljat. SFC took part in the first funding round in 2017 through its SEIS fund and followed on in 2018 through its 2017/18 EIS Fund. 

At the time of SFC’s first investment, Cognism had recurring revenues of £4,500. In 2020, it announced annual recurring revenues were over $11 million and in 2021 featured in the LinkedIn Top Startups list for the third year in a row. 

In January 2022, Cognism announced it raised $87.5 million in a deal led by American investment group Viking Global Investors. The deal valued the business at more than $147.5 million, and SFC took the opportunity to sell a little under half its stake in the business for a 43.2x gain. Past performance is not a guide to the future. 

VN Carbon Capture – example of previous failure

As is to be expected with very young businesses, SEIS companies can and do fail.

One failure in the SFC previous portfolio is VN Carbon Capture (Gas) Ltd which received investment in April 2014.

The company was formed to pursue the commercialisation of a discovery by researchers at the University of Newcastle allowing a cost-effective capture and recycling of CO2 using nickel nanoparticles which could translate into significant commercial potential. The investment was made on the back of a promising feasibility study and funds were used to run further laboratory tests and simulations with a view to develop the research into industrial technology. Unfortunately, the research showed the technology was not economically viable and did not get commercial traction despite receiving interest from the scientific community, the press and industrial companies. The company dissolved in 2017. 

Performance

Early-stage investments can take time to mature – SFC expects investment holding periods of up to eight years. Now, around eight years from SFC's first SEIS fund, there appear to be some encouraging signs. Unrealised returns are attractive in our view and several investments have now achieved profitable exits, enabling the fund to start returning some capital to investors. 

Cognism (above) and internet of things specialist Vortex IoT, are two notable successes, generating returns of 43.2x and 8.4x respectively and boosting realised returns from the 2016/17 and 2017/18 tranches.

On average, investments made more than five years ago (2013/14 to 2016/17) have generated £174.51 in unrealised returns (before tax relief), and £16.14 in realised returns, for every £100 invested. Note: past performance is not a guide to the future. The chart below shows the average performance of the total subscribed into the funds each tax year, based on valuations as at 31 May 2022, expressed on a £100 invested basis. Please note, individual investor portfolios’ performance will deviate from the average.

Performance per £100 invested in each tax year

Source: SFC, as at 31 May 2022. Past performance is not a guide to future performance. The chart shows realised returns (where share proceeds have been returned to investors as cash) and unrealised returns (where cash has not yet been returned and the value of the investments is based on the manager’s own valuation methodology). There is no ready market for unlisted shares. The figures shown are net of all fees and do not include any income tax relief or loss relief.

Risks – important

This, like all investments available through Wealth Club, is only for experienced investors happy to make their own investment decisions without advice. 

SEIS investments are high-risk and should only form part of a balanced portfolio. As must be expected with early-stage investments, some or even all of the companies in the portfolio could fail: the fewer the companies included in the portfolio, the higher the risk of loss if things don’t go to plan. You should not invest money you cannot afford to lose.

There is no ready market for unlisted SEIS shares: they are illiquid and hard to sell and value. There will need to be an exit for you to receive a realised return on your investment. Exits are likely to take considerably longer than the three-year minimum EIS holding period; equally, an exit within three years could impact tax relief.

To claim tax relief, you will need SEIS3 certificates, normally issued once shares have been allotted. This can take several months: please check the deployment timescales carefully. Tax reliefs depend on the portfolio companies maintaining their SEIS-qualifying status. Remember, tax rules can change and benefits depend on circumstances.

Before you invest, please carefully read the Risks and Commitments and the offer documents to ensure you fully understand the risks. 

Charges

A summary of the main charges and savings is shown below. Some of these will be payable by the investor, whilst others by the investee companies. The investment may have additional charges and expenses: please see the provider documents, including the Key Information Document, for more details.

Investor charges
Full initial charge 2.5%
Wealth Club initial saving
Net initial charge through Wealth Club 2.5%
Annual management charge
Administration charge
Dealing charge
Performance fee 30%
Investee company charges
Initial charge 6.5%
Annual charge 1%
All fees and charges are stated exclusive of VAT, which may be applicable. Any fees and charges payable by the investee companies or the underlying businesses do not directly come out of your investment. However, they will effectively reduce the returns generated by investee companies and therefore impact your investment.

More detail on the charges

Our view

There are several reasons why SFC stands out as an SEIS fund offer, in our view. 

SFC benefits from strong ties with leading universities and accelerator programmes. Combined with its own angel network, that gives the investment team access to a strong pipeline of deals. 

To support this deal flow, the business has developed a highly efficient investment process that allows it to complete hundreds of investments per year, making SFC one of Europe’s leading startup investors (by number of investments made), and a destination for founders seeking capital. 

This is relevant to investors considering SEIS for two reasons. 

Firstly, SFC’s deal flow means it can build a diversified portfolio. Diversification is important and should be welcome, especially considering the fund invests at a very early stage, when risks are highest. The additional SEIS3 paperwork involved is simplified somewhat by a tax summary that SFC provide.

Secondly, having a healthy pipeline of new deals means the fund should be able to deploy investors’ money in a timely manner, making tax planning easier. Indeed, SFC has not missed a deadline for investing subscriptions in seven years – although there is no guarantee for the timing of future deployments.

Investments made within SEIS funds from earlier tax years are starting to bear fruit. The recent partial exit from Cognism (above) and full exit from Vortex IoT, have delivered substantial realised gains to investors in the 2016/17 and 2017/18 tranches, while other funds are also showing strong paper gains. Past performance is not a guide to the future. 

This offer could appeal to experienced investors who are happy with the high risks of SEIS investment and keen to get exposure to the bright new businesses of tomorrow.

Read important documents and then apply

Wealth Club aims to make it easier for experienced investors to find information on – and apply for – investments. You should base your investment decision on the offer documents and ensure you have read and fully understand them before investing. The information on this webpage is a marketing communication. It is not advice or a personal or research recommendation to buy any of the investments mentioned, nor does it include any opinion as to the present or future value or price of these investments. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination. 

The details

Type
Fund
Sector
Technology
Target return
3x
Funds raised / sought
-
Minimum investment
£10,000
Deadline
26 Aug 2022 for 2022/23 allotment
Last updated: 1 July 2022

News about SEIS Investments. Read all